How to Unleash $45 Billion for Charity

Stanley and Fiona Druckenmiller, along with the Edna McConnell Clark Foundation,
support the Harlem Children's Zone, a nonprofit for poverty-stricken children and families living in Harlem,
Harlem Children's Zone

Hundreds of billionaire philanthropists who have signed the Giving Pledge—following in the footsteps of Bill and Melinda Gates and Warren Buffett by pledging to give away more than half their wealth—have gone far in supporting worthy organizations and raising the profile of important philanthropic causes.

Yet a report from The Bridgespan Group, a U.S. research and advisory firm for nonprofits and donors, finds the generosity of ultra-wealthy individuals and families falls short of what they could be giving. The philanthropies hurt most by this shortfall are on-the-ground “social change” nonprofits working to improve society, health care, and the environment.

In doing the research, “what was staggering was, first, to understand that people do in many instances want to put more money to work, and second, to appreciate that it’s in fact hard to do really well,” says Tom Tierney, Bridgespan’s co-founder and the former chief executive of Bain & Company, the private equity firm.

Third, Tierney adds, “is the consequence of it being hard is that they actually aren't putting money to work.”

If an ultra-rich family wanted to spend down half its wealth over 20 years, that would mean boosting donations to 11% of assets a year, 10 times more than today, the group said.

In the report, which received funding from the Bill & Melinda Gates Foundation, Bridgespan outlines how giving by the U.S.’s wealthiest could double to $90 billion a year, unleashing another $45 billion to attack the country’s gravest social and environmental issues.

“We think there's a historic impact opportunity here,” Tierney says.

Not everyone is left behind. Large nonprofit organizations, such as medical centers, major arts organizations, and universities, already get plenty of funding, often from the country’s wealthiest individuals. Most of these organizations have endowments, wealthy beneficiaries, and well-staffed development teams expert in seeking out funding.

Tierney and Bridgespan don’t have an issue with these successful organizations. It’s just that they’ve observed a “market breakdown” when it comes to the ability of social service organizations—those helping low-income families or the elderly, for example—to attract the same level of philanthropic capital.

There are several reasons for the shortfall, including the fact that small, thinly staffed organizations aren’t equipped to effectively absorb a lot of money at once, and that many wealthy individuals don’t want to risk funding efforts that may be innovative, yet unproven.

Another issue is the “market” for matching donors with opportunities is broken, particularly as fewer wealthy individuals and families are inclined to set up large, well-staffed foundations, like another Gates or Ford or Rockefeller Foundation.

“Nobody wants to waste their money, and this is why historically, [wealthy individuals and families] endowed foundations and hired a bunch of people to help them give their money away, because it takes resources to do it intelligently and effectively,” Tierney says. “And yet today, many people are not staffing large foundations.’

The goal of the research, which included interviews with more than 60 ultra-wealthy families, was to find out what mechanisms, instead, might exist today, or should be created, to scale these barriers, and facilitate the movement of capital to effective organizations on the front lines of making positive societal change.

They came up with four “pathways” to get money to organizations that need it most: the use of “aggregated funds,” created from large donations from individuals and families; development of a national “community foundation” aimed at boosting economic mobility; expanding the size and scope of strategic philanthropy services; and building the capacity of social-change nonprofits to plan for and deploy large gifts.

“The report doesn’t claim to have the only ideas, it’s more an observation about what seems to already be working, but maybe working at a scale that is tiny relative to the potential,” Tierney says.

Establishing Aggregated Funds as a “Common Asset Class”

Consider aggregated funds. Sometimes known as donor collaboratives, these platforms pool capital from several large individual donors or foundations and typically channel it to specific social service causes, from poverty, to health care, to education, and the environment.

Bridgespan looked at about 40 of these funds and found that just eight give away $50 million or more a year. The group believes that at least $5 billion a year could be deployed to social service agencies through these funds if they could scale their efforts, or if wealthy philanthropists boosted their levels of giving.

One effective aggregator is Blue Meridian Partners. The platform is structured as a private equity fund, with eight general partners who commit to donate $50 million over five years, and several limited partners, who commit to giving $15 million.

Stan Druckenmiller, former hedge fund manager and founder of Duquesne Capital, is chairman of the fund and a general partner alongside Alphabet President Sergey Brin, former Microsoft CEO Steve Ballmer, and hedge fund manager David Tepper.

Druckenmiller came to Blue Meridian because of Nancy Roob, the CEO, whom he met through her work with the Edna McConnell Clark Foundation, or EMCF, supporting the Harlem Children’s Zone, an organization he and his wife, Fiona, have long supported.

Roob, and EMCF, had an approach to philanthropic investing similar to how Druckenmiller approached investing. That is, they took big bets on organizations they believed in and stuck with them, helping them get over hurdles and grow.

Blue Meridian has invested in about eight organizations so far; those that overcome hurdles that show they can scale their efforts may get as much as $200 million in capital over time.

“I'm hopeful the efficacy of a concentrated approach where you're involved with institutions and you're helping guide them and you’re going along is more effective,” Druckenmiller says. “Obviously I think it is or I wouldn't be involved with it.”

Because of the need to draw out more aggregated capital to attack society’s needs, Druckenmiller says Blue Meridian—which has grown to $1.8 billion since 2016, with annual funding of $150 million—needs to succeed. “There's nothing that creates imitation like success,” he says.

One benefit of Bridgespan’s research is it reveals the low amount of giving among the nation’s wealthiest, creating a sense of urgency in an area that’s often missing when it comes to philanthropy.

It’s easy to put off giving for another day, another year, because there’s no cost to waiting, unlike with investing, says Rob Rosen, director of the Gates Foundation’s global relationships with philanthropists and charitable organizations.

But the action plan the research offers is particularly useful, and Gates is sharing it among its Giving Pledge community and others.

“Even when you've got that sense of commitment, and the feeling of urgency to take action, going about it can be difficult and that's where things like Blue Meridian, and other mechanisms that are really starting to build some momentum, are part of the solution to that challenge,” Rosen says.

How to Unleash $45 Billion for Charity

Hundreds of billionaire philanthropists who have signed the Giving Pledge—following in the footsteps of Bill and Melinda Gates and Warren Buffett by pledging to give away more than half their wealth—have gone far in supporting worthy organizations and raising the profile of important philanthropic causes.

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